When transitioning to President of Frigibar Industries, Inc., our family business for over 40 years, there was no succession plan. Instead of being able to jump into the position and begin working on building the company, several months were spent putting processes into place, organizing documents, and learning how things were done in the past -- all of which could've been done months or years earlier.
When it comes to planning, or not planning for succession in a family business, Jonathan Godwin says, "You're making a conscious business decision if the business will live on or die." As Founder of Godwin & Associates, CPA, assisting family businesses with succession planning, Jonathan has too often seen the negative effects of business owners failing to plan for succession. "It's often not on their radar until it's too late," says Godwin.
With Frigibar, I was lucky to have an excellent team of employees willing to help me learn and run the business, but waiting to plan for succession doesn't always work out. Here are seven reasons to start planning for succession in your family business starting today.
1. Clearly State Intentions
Creating a succession plan makes the future of your business and your intentions clear to everyone involved. Understanding intentions seems simple and of little impact, but the importance of knowing what the current president or CEO wants cannot be stressed enough. Disaster can happen when everyone is left in the dark and no one knows what to expect or what to do.
Although I had begun to help out around the office months before taking over for my father, we hadn't discussed what he actually wanted. I found out nearly a year after he had passed from a family friend that my father did in fact want me to take over the business. I missed out on a lot of opportunities to pick his brain and discuss the future of the business because I didn't know what his plans or intentions were.
Looking back, I realize he tried to hint around the idea about me moving "closer to home," and that may have been the way he shared his interest in me taking over the business. However, I had an established life and career path and the hints just weren't direct enough. Finding out later it was what he wanted was heart breaking and sad. What a wonderful experience it would have been to have had that time to learn the business from him.
While I understand my father wanted my involvement in the business to be my decision, a more direct expression of his desire to have me involved would have gone a long way. If you have children and may be interested in having them succeed you in the family business, I strongly encourage you to have a serious, direct discussion about it. It will be their decision either way, but the encouragement and time together learning the process will be priceless.
2. Put Important Processes in Writing
Whether planning for succession or not, every position within your company should have processes outlined and a reference manual created. Even simple tasks can have a big impact on the business and be difficult for someone to learn how to do from scratch without a guide. By putting each process in writing, any new employee or leader can understand what was done in the past and how to perform necessary tasks.
While we all hope succession happens as a natural part of a family business, tragedy does happen. Planning is of significant importance when the unexpected occurs. As my family experienced when Lou Gehrig's Disease (ALS) struck my father, his swift decline left little time to plan what to do with the business and little comfort for my father in how our business might provide for us in the future.
The value in having a plan and knowing how to proceed during this unfortunate event would have provided the resources for my family to spend the remaining time with my father in the ways it mattered most: sharing love and caring for him. Dealing with an untimely illness or death is hard enough; succession planning will remove some of the stress experienced in these situations. As Warren Buffet has said "Someone's sitting in the shade today because someone planted a tree long time ago."
3. Keep Employees Informed
"In the end, all business operations can be reduced to three words: people, product and profits. Unless you've got a good team, you can't do much with the other two." - Lee Iacocca
When there's turnover of ownership or leadership, employees often get the worst of it. "Keep current employees informed," Godwin says. "No matter what, this (succession) will be stressful for long-term employees... getting key employees on board is the best idea. Let them know about the changes that will impact the company. It will affect everybody."
Planning ahead should be seen as a sign of respect to your current employees. Involving them in the succession process, including having them outline their roles, activities and responsibilities, will help them feel more at ease and comfortable when leadership changes occur.
4. Maintain Customer and Partner Relationships
A long delay in leadership or a messy transition can impact your customers. For small family businesses, every customer relationship is important. Turnover, especially unexpected changes in leadership, may signal trouble to industry partners and customers.
Although my succession wasn't planned, my participation in boat shows and other industry-related events helped develop relationships that are still strong to this day. If the new leader doesn't have rapport or time to connect with customers and industry partners before taking over, those customers and partners may look for other places to take their business.
My father was well respected and had a great reputation. This was very helpful in the beginning and still is when talking to customers, friends and suppliers. Stories about how much someone enjoyed or loved him provides a wonderful connection and historical account of their experience with my father and our company in the past. While planning your succession, be sure to introduce your successors to employees, customers, suppliers and friends of the business. These relationships will enhance the existing relationships and create valuable connections and a level of comfort prior to a transition.
5. Allow for Testing and Learning the Position
Most non-family businesses put a lot of time and care into succession plans. Employees are groomed for years to take over leadership positions and provided training.
When a family member unexpectedly takes over the business, there's little to no time to learn and test the fit. Instead of trying to put a square peg in a round hole, planning ahead allows the successor to have enough time to test the position, learn from the current owner, and to experience a preview of what their in store for when they take over.
6. Learn to Delegate
Godwin points to delegation as one of the most important abilities of a founder who is prepared to eventually transition their business over to a family member. "If you are already doing everything and can't delegate, you won't be able to take the time to teach someone else to learn the business." Being able to delegate now allows others to learn important tasks and reduces the potential strain on a new president who won't be able to do everything at once.
Failure to delegate while running the business often forces founders to come out of retirement in order to put out fires and help train new employees. Godwin states, "If you're thinking of a future transition, you have to be able to delegate and get out from under things that don't need you involved."
Every CEO and founder has a unique relationship with their employees that develops over years. When a shift happens, if everyone is taken by surprise, it's hard for the employees, and whoever takes over the role, to know what to expect and form a level of trust and synergy.
As an inexperienced business leader in my early 30s, it was a challenge to maintain the synergy that was formed between my father and employees. Trust and synergy take time to build, and unexpected and unnecessary changes can ruin years of hard work. By putting a plan into place, changes in leadership will have little negative impact on your business and your corporate culture will have a better chance of staying intact.
There will always be challenges when leadership changes hands in a business. While there's no way to escape all of these challenges, planning ahead establishes a framework and expectations that help everyone involved in the change. Regardless of if you're in a family business or a company of 5,000 employees, the reasons to plan for succession starting today are greater than any excuse or reasons not to.